Two weeks ago, when the global markets tanked, the blame was squarely placed on what happened in the Chinese stock market. I am sure that we can find a scapegoat willing to take the heat for today’s 2% drop in the major averages.
As I looked around, I came to the not so unique conclusion that the fault is clearly found in our own business backyard. Especially, in that part of the mortgage industry that “prides” itself on subprime lending. To see an almost similar repeat of the Savings and Loan crisis some 20 years ago represents nothing but greed based on stupidity and ignorance of subprime lenders.
During the height of the real estate boom, a couple years back, some of my clients in the mortgage industry boasted that they could make a real estate loan to anybody who could write the words “stated income” and was able to fog up a mirror.
Credit scores or actual means of repayment were of no importance. Everything was based on the fact that real estate would go up forever and refinancing was an ever present option. It was la-la-land for mortgage brokers.
Sure, why not go for the upfront money with a marginal borrower. If you can make a couple extra points right now, why should you care whether payments can be made later? It’s money in your pocket. Besides, your company gave you those products to sell, so you’re doing the right thing.
I don’t blame the individual sales person for bringing home the bacon; I fail to understand how an entire industry can jump on this apparently unregulated band wagon without ever considering the potential fallout from such reckless lending activity.
While the jury is still out as to the total spillover effects, not only on real estate but the economy as a whole, the end result will most likely be very costly to the tax payer—again. Just like after the S&L; crisis of the 80s, a lot of jaw boning will take place, some participants will get their hands slapped while others will go to jail for direct fraud.
Lending regulations will be tightened but, after a few years, when all is forgotten, it will be business as usual.
Sad but true.